Competition Unleashed

S ecurities dealers must use technology to foster competition, says SEC Chairman Arthur Levitt, who hopes to provide more liquidity across markets.

In a speech delivered September 23 at Columbia University Law School, Levitt threw down the gauntlet to the New York Stock Exchange, which handles more than 80% of the order flow in the U.S. The subtext: Find a way to patch in these newly-created electronic communications networks, such as Instinet and Island, which hopes to register as an exchange, or else. These entities, Levitt said, must "be permitted to compete with the Nasdaq market and established exchanges on fair and equal terms."

This means finding a way to link them through the "archaic" Intermarket Trading System, the means by which the Big Board patches in orders from other exchanges. Said Levitt: "It should not prevent, as it currently does, efficient electronic routing to other markets. ECNs simply must be able to compete with traditional exchanges and dealer markets in an environment free from unfair advantages or unreasonable barriers."

Levitt went on to list improvements that he said the SEC had wrought by increasing competition between markets, including the imposition of new rules forcing broad disclosure about the handling of limit orders, and the tightening of spreads. Said the chairman: "Once artificial obstacles such as fixed commissions were removed ... choices expanded. Commissions fell. Volume skyrocketed. Over the longer term, new competing market centers have taken hold. Executions are faster and their costs lower than ever."

However, some critics argue that, ironically, these blessings have weakened some safeguards of fair treatment. "We have to balance narrower units of trading with limit-order protection," says Leo Guzman, president of Guzman & Co., a Miami investment firm. "There's little doubt that reduction of the minimum unit of trading to 1/16 was beneficial. But still-smaller trading increments make it ever-easier to front-run [trade ahead of customers'] limit orders and further dampen the effect of the short-sale rule," which permits shorting of a stock only if its price rose on its last trade.

Dow Indicator

Dow Indicator

Dow Industrials

10,019.71

-630.05

Dow World Index

212.92

-9.24

30-Year Treasury Bonds

6.261%

+0.074

Inflation Fears

Friday's Producer Price Index report indicated that the cost of wholesale goods rose 1.1% in September, the largest monthly spike in nine years. That news sent stock prices sharply lower, with the Dow Jones Industrial Average closing at 10,019.71, off 5.9% for the week.

There He Goes Again

Speaking to a conference of banking regulators, Federal Reserve chairman Alan Greenspan suggested on Thursday evening that there may be more risk in current stock-market valuations than investors are taking into account. Though hardly inflammatory, his remarks helped pull the rug out from under an already jittery market.

Copper Capitulation

Copper giant
Asarco
said its board voted Friday to accept a sweetened $2.2 billion bid from
Grupo Mexico
, its largest shareholder. The decision all but ends rival
Phelps Dodge
's seven-week effort to gobble up the third-largest U.S. copper producer.

Hobson's Choice

Bank of Korea governor Chon Chol-hwan discussed the challenges ahead for his country's economy at a business forum sponsored by the European Chamber of Commerce in Seoul on Tuesday. "The central bank may face a dilemma of having to choose either price stability or promoting economic recovery if inflation picks up while restructuring is still incomplete."

Polyglot IPO

Infonet Services, an international data network operator, filed with the Securities and Exchange Commission to sell up to $1 billion worth of Class B common shares. Six international telecommunications companies --
KDD
of Japan, KPN Telecom of the Netherlands,
Swisscom
of Switzerland,
Telstra
of Australia,
Telefonica
of Spain and
Telia
of Sweden, each hold more than 15% of the company's voting stock.

Set to Spin

Frankfurt-based Celanese set its average price at $20.70 last week for the coming spinoff from
Hoechst
.
Credit Suisse First Boston
is handling the $1.68 billion Celanese offering.
Kuwait Petroleum
, which holds a 25% interest in Hoechst, receives a proportionate one-quarter interest in the new Celanese.

Canceled Deals

Fleet Boston
canceled plans for an initial public offering of its SureTrade online brokerage unit. Premiums for online brokers have dropped sharply in recent months, as online trading experienced its first-ever quarterly decline. Deals for gift retailer Kirklands and sports headware retailer Hat World also got the hook.

Rosy Scenario

Michael Moskow, chairman of the Chicago Federal Reserve Bank and a voting member of the Federal Open Markets Committee, says he expects U.S. economic growth to outpace his earlier estimates. Speaking at the Iowa Industry and Conference Awards lunch in Des Moines on Wednesday, he said, "Growth has been driven by unusually strong consumer demand and consumer spending and our expectations for growth are even more positive than they were earlier in the year."

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